It’s been a downhill ride for long-term investors of electric vehicle manufacturer Lucid Group (NASDAQ:LCID). However, LCID stock caught a bid recently because of a much-touted partnership with another automaker.
This doesn’t change our “D” rating on the stock, however, as the collaboration isn’t enough to make Lucid Group a high-confidence pick.
We’ve warned prospective investors about Lucid Group before. For instance, we reported on Lucid’s announcement of a public offering (i.e., sale) of 173,544,948 stock shares. This is a serious concern as it could dilute Lucid Group’s existing shareholders.
We noted the risks involved with Lucid Group’s move into China’s EV market. Now, there’s another development that needs to be addressed. Lucid Group might try to spin it as a value-added collaboration, but financial traders shouldn’t get their hopes up.
LCID Stock Pops on Aston Martin Partnership
So, here’s the scoop. LCID stock jumped 10% on the morning of June 26 even while the major stock market indices were flat. It wasn’t difficult to figure out why this happened.
The catalyst was Lucid Group’s announcement of a partnership with Aston Martin (OTCMKTS:ARGGY). You may recall that the hero of the James Bond film franchise drives a fancy-looking Aston Martin car.
That might help to explain the 10% pop in LCID stock. After all, it’s easy to get excited when Barron’s is saying, “James Bond Got an EV Deal.” However, sensationalist headlines don’t actually make this a value-added deal for Lucid Group.
In this deal, Lucid Group will supply EV “power train and battery systems” to Aston Martin. In return, Aston Martin will provide “cash payments and issue 28.4 million new ordinary shares to Lucid, worth together about $232 million,” according to a Reuters report.
Don’t Expect Too Much From the Deal
What we should remember is that Aston Martin is a British luxury carmaker with high overhead and low sales volumes. In fact, Reuters reported that Aston Martin “forecast wholesale volumes of about 7,000 units for 2023, slightly below average market expectations of 7,134.”
Frankly, Aston Martin is better at spending money than making it. In 2023’s first quarter, Aston Martin reported free cash outflow of 118 million pounds. That’s much higher than the free cash outflow of 25 million pounds from the year-earlier quarter.
Aston Martin is an unprofitable business with a first-quarter 2023 loss before tax of 74.2 million pounds (or roughly $92.7 million). Lucid Group is also unprofitable, so now we’ll have one income-negative automaker owning shares of another one.
Besides, as we said, the total value of the deal to Lucid Group is $232 million. That might not be enough to rescue Lucid from its financial problems.
In particular, Lucid Group’s balance of cash and cash equivalents was practically cut in half, from $1.736 billion as of Dec. 31, 2022, to $900 million just three months later.
Thus, a $232 million capital infusion – some of which will consist of shares in an unprofitable company instead of cash – probably won’t be a long-term game-changer for Lucid Group.
Brace for Disappointment With LCID Stock
Lucid Group now has to spend capital and human resources to provide EV technology for Aston Martin. In return, Lucid will get some cash and Aston Martin shares.
However, this probably won’t be enough to solve Lucid Group’s financial issues, especially the company’s rapid cash burn. The point is, prospective investors shouldn’t get over-hyped about Lucid Group now. In the final analysis, LCID stock still gets a “D” rating and isn’t a high-conviction pick in 2023.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
